Anatomy of a Broken Chart

A stock we highlighted a few weeks ago, NexGen Energy (NXE.TO), has since broken to the downside and now has what can be considered a ‘broken chart’ with a strong probability of additional downside ahead:

 

NXE.TO (Daily)

nxe-to_9-27-2016

As I have said on numerous occasions, I have no opinion on NexGen’s fundamentals other than to state that the company has a top notch management team and they may be in the worst sector (uranium) in the entire market. I do however have an opinion on NXE’s chart technicals.

After surging higher to begin the year NXE made an emotional climax in April and subsequently spent the next four months churning a great deal of volume between ~C$2.10 and ~C$2.80. A few weeks ago NXE shares broke the multi-month range to the downside before finding support near the rising 200-day simple moving average. The oversold bounce lasted for three days and failed at exactly the level which I identified a few weeks ago as crucial support (C$2.10). Previous support becomes resistance.

The shallowness of the bounce should be concerning for NXE bulls. Sellers have been in control for months and they are becoming more aggressive in hitting bids in order to release their shares. Below C$1.82 it should be a quick trip down to the C$1.50s. NXE is a broken chart in need of time in order to heal. C$2.10 is a steel plated ceiling of resistance until proven otherwise.

 

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